Spike in minimum wage could cost low-income workers, experts say

A preliminary analysis of a potential boost in Vermont’s minimum wage shows that without concurrent policy changes to public assistance programs, low-wage workers might lose more in benefits than they gain in earnings.

The finding was presented to the House Committee on General, Housing and Military Affairs on Tuesday afternoon. The committee holds jurisdiction over labor issues, and is pondering a graduated increase in the state’s minimum wage from $8.73 cents per hour to anywhere from $10.10 to $12.50 or higher.

Rep. Helen Head, D-South Burlington, chair of House General, said she is willing to take more testimony after a public hearing scheduled for 6 p.m. Thursday at the Statehouse. She hopes to move the bill out of her committee by the end of next week, if not sooner.

Gov. Peter Shumlin recently called for a gradual increase to $10.10 over three years, in line with President Barack Obama’s national campaign. A “consortium” of four New England governors have fallen in line with the initiative: Shumlin, Dannel P. Malloy of Connecticut, Lincoln Chafee of Rhode Island and Deval Patrick of Massachusetts.

Legislative economist Tom Kavet. VTDigger file photo

Legislative economist Tom Kavet. VTDigger file photo

Legislative economist Tom Kavet and Joint Fiscal Office staffer Deb Brighton wrote a memo based on an immediate wage hike to either $10.10 or $12.50, starting in 2015. They said impacts likely will vary by sector, and repercussions for workers and the state budget are complicated.

Because some businesses theoretically will not be able to afford the same number of workers at a higher wage, about 250 job losses could occur from an increase to the lower threshold, they wrote. Those who retain their positions could earn about $30 million more, however. That would lift some people off public assistance programs, Kavet told lawmakers.

“The reduction in federal transfer payments as a result of lower federal aid participation, however, could result in approximately $5 million in reduced Medicaid, EITC (earned income tax credit), SNAP (3 Squares) and other payments to the State,” the report states.

Kavet said the effect of such a drastic hike in the minimum wage is difficult to predict because it’s uncharted territory. He said no matter the size of the raise, it will directly affect a tiny fraction of the state’s total labor force, and the bigger the raise, the bigger the impact will be.

To that end, a jump to $12.50 per hour could result in approximately 3,200 lost jobs, or about 1 percent of total employment. Aggregate income gains for low-wage workers might reach $250 million. And the loss of federal funds the state would experience could be roughly $35 million.

Kavet said he would need to conduct further study of the data to forecast more specific impacts. Lawmakers were particularly curious about the differential between Vermont’s minimum wage and that of neighboring states, especially New Hampshire, which reduced it to match the federal minimum of $7.25 per hour in 2011.

They also may ask him to take a closer look at the interaction between the state’s minimum wage rates and federal assistance programs. Lawmakers are concerned that workers might lose more than they gain by working extra hours or earning more money, and they’re also worried about hidden, indirect pressure on state coffers should there be an exodus of low-wage workers leaving social welfare programs.

Kavet suggested there might be ways to work around regulations to keep federal aid while directing more earned income back to the pockets of low-wage workers.

Head said keeping the state’s minimum wage in line with neighboring states is particularly attractive because a group of states would have more leverage in negotiations with federal partners.

Hilary Niles

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